UPDATE: Nixon raises new concern about income tax cut

JEFFERSON CITY — Democratic Gov. Jay Nixon raised new concerns Tuesday that a tax cut passed by the Missouri legislature could have "cataclysmic" consequences for state revenues, but Republican legislative leaders responded that he was manufacturing a crisis to justify a forthcoming veto.

Nixon asserted that the legislation could eliminate taxes on all income over $9,000, busting a $4.8 billion hole in the state budget and forcing the closure of public schools, prisons and mental health facilities.

Although he didn't veto the bill Tuesday, Nixon made clear that he will do so in the coming days.

The tax cut "would devastate our economy, bankrupt our state, cripple our schools - and it cannot become law," Nixon said in remarks prepared for a series of news conferences across the state.

House Majority Leader John Diehl called Nixon's new criticisms "utterly ridiculous," ''laughable" and "absurd" and accused him of engaging in "a pattern of scare tactics and deception."

He said legislators would attempt to enact the tax cut by overriding Nixon's expected veto before the annual session ends May 16. An override would require a two-thirds vote in both chambers, meaning Republicans would need to vote as a block and pick up the support of at least one House Democrat. Republicans received the vote of one Democrat when they passed the tax cut last week.

About 50 GOP lawmakers stood behind party leaders at news conference later Tuesday to show their support for the tax cut. House Speaker Tim Jones and Senate President Pro Tem Tom Dempsey both accused Nixon of generating a "manufactured crisis."

"It's a complete and utter fabrication in his own mind," Jones said. "This bill will do nothing except encourage more growth, investment and opportunity in the state of Missouri."

The governor's barnstorming campaign against the tax cut is similar to the tactics he used last year to defeat a more sweeping version of an income tax cut. After lawmakers passed that bill, Nixon said the hit to state revenues could have been more than $1 billion in a single year. Republicans' support for the bill faded, and the House ultimately fell 15 votes shy of the 109 needed to override Nixon's veto in September.

Official legislative projections, based on research from MU, estimate that this year's bill eventually would reduce state revenues by $620 million annually.

The main provisions of the legislation would gradually reduce Missouri's top individual income tax rate and phase in a new 25 percent deduction for business income reported on personal tax returns. The incremental tax cuts would start in 2017 but are contingent on annual state revenue growth of at least $150 million over the high mark from the previous three years.

Missouri's top tax rate of 6 percent currently is charged on all income more than $9,000. The legislation authorizes an annual one-tenth of a percentage point reduction in that top rate until it drops to 5.5 percent, which is the rate currently charged on income between $8,000 and $9,000.

The legislation states that once the top tax rate is lowered to 5.5 percent, "the bracket for income subject to the top rate of tax shall be eliminated." Nixon said that means a tax no longer would be charged on any income over $9,000, which was previously the top tax bracket.

He said that would wipe out 97 percent of Missouri's individual income tax collections and about two-thirds of the state's general revenue budget, "ultimately pushing Missouri into fiscal chaos."

No one else previously had interpreted the legislation that way.

Nixon's office provided a memo from Washington University law professor Cheryl Block backing up his interpretation.

But Republican legislative leaders countered with a memo from former Missouri Supreme Court Chief Justice William Ray Price Jr. rejecting that interpretation. Price said he believes courts would rule that the legislation sets a new top tax rate of 5.5 percent on all income over $8,000.

He pointed to a sentence in the bill immediately preceding the one Nixon singled out. That wording says the Department of Revenue director "shall, by rule, adjust the tax tables" to carry out the provisions of the bill.

Republican legislative leaders said their caucus is more committed to this year's bill, which is less complex and less aggressive in the scope of its tax cuts.

"The governor is grasping at straws," said the bill sponsor, Sen. Will Kraus, R-Lee's Summit. "I think the bill on his desk will be overridden and it will become law.